"The most common characteristic of all police states is intimidation by surveillance. Citizens know they are being watched and overheard. Their mail is being examined. Their homes can be invaded." ~ Vance Packard

The Revolution's Paper Money Legacy

After Lexington and Concord, Congress had a war on their hands and needed a way to finance it. The Americans were in large measure tax rebels, so taxation of their own would have to wait. After giving some thought to borrowing, Congress decided instead to call upon their old friend, the printing press.

The colonists had a long history with paper money. They had been inflating since the 1690s and had all but driven silver specie out of circulation. In 1751, Parliament banned further note issues in New England, and by 1764 extended the prohibition to the rest of the colonies. All colonies were required to gradually retire the notes still in circulation. What were the consequences? Following a brief period of price deflation, and in contrast to dire predictions caused by a lack of money, hard money New Englanders experienced price stability and prosperity. [p. 54-55]

Financing the Revolution

The Congress of 1775, though, was in a tough spot. As Rothbard notes,

A purely guerrilla force might well have been naturally financed by voluntary contributions -- in money and in kind -- on the spot. But to finance regular armies on a centralized basis from voluntary contributions was completely outside the ken of the world at the time. [Vol. IV, p.53]

On June 22, 1775 , Congress decided to print $2 million in Continentals, or 'bills of credit.' The plan was to begin redeeming them in 1779 -- not in hard money, but by levying taxes in the Continentals themselves, which would then be retired. With the issue of Continentals, the prospect for the colonists was bleak: They'd get hit first with a 'tax' burden from the inflation, followed by a massive tax to get rid of the inflated dollars. [Vol. IV, pp. 54-55]

So intoxicating is the power to print money that Congress could not restrain itself. By the end of 1775, some $6 million in Continental currency was either printed or authorized, a 50 percent increase of the estimated $12 million colonial money supply. [Vol. IV, p. 55] Congress issued $19 million in 1776, $13 million 1777, $64 million in 1778, and $125 million in 1779, for a total of $227 million in five years. By December of 1779, the Continental had fallen to 42-1 against specie, and by spring of 1781 it was virtually worthless, requiring 168 dollars to exchange for one dollar of silver. [p. 60]

Each state also printed its own currency to finance the war, and the British easily counterfeited colonial currency to bloat the money supply further.

Price and wage controls

Depreciation of the Continental was so bad that Congress debated the wisdom of price and wage controls, or 'schedules.' Dr. Benjamin Rush, one of the signers of the Declaration, was a leading opponent of controls. Writing on February 14, 1777 , he argued that

. . . the price of goods may be compared to a number of light substances in a basin of water. The hand may keep them down for a while, but nothing can detain them on the bottom of the basin but an abstraction of the water. . . The resolution before you [for price and wage controls] is nothing but an opiate. It may compose the continent for a night, but she will soon awaken again to a fresh sense of her pain and misery. [p. 782, 783; emphasis in original]

Few people were listening, however. Rather than stop or slow the presses, Rothbard notes,

various states levied maximum price controls and compulsory par laws. The result was only to create shortages and impose hardships on large sections of the public. Thus, soldiers were paid in Continentals, but farmers understandably refused to accept payment in paper money despite legal coercion. The Continental army then moved to 'impress' food and other supplies . . . [p. 60]

Redemption in Massachusetts

The Continental had been allowed to sink into worthlessness without attempting to redeem it, but in 1779 Congress began emitting 'loan certificates' that were also used as currency. At war's end some of the $600 million in certificates were liquidated at their highly depreciated rate, but most became the core of a permanent, peacetime public debt.

Rather than let the certificates pass into oblivion in the same manner as the Continentals, Robert Morris, the leader of the nationalist faction, pushed for redemption at par of the existing debt, both federal and state. He did so for two reasons:

(a) to confer a vast subsidy on speculators who had purchased the public debt at highly depreciated values, by paying interest and principal at par in specie, and (b) to build up agitation for taxing power in Congress . . . [p. 61, 62]

In 1780, Massachusetts adopted a controversial new constitution that had been ratified by only 47 of the state's 247 towns, most of which were in or around Boston . Not surprisingly, the new constitution favored the rich eastern elite -- the merchants, bankers, and speculators. Many of the constitution's provisions had little support in the state's western towns that later became the nucleus of Shays's Rebellion.

Prior to the Revolution, the Massachusetts backcountry rarely felt the impact of government decisions made in Boston . After 1780, that was no longer true -- especially when the government decided to redeem its notes at face value and tax westerners to pay for them.

Many of the men in the western towns had fought in the Revolution and were paid in heavily depreciated notes. To acquire basic necessities, most parted with their notes for one-eighth to one-tenth their original value. Who acquired these notes? 'Nearly 80 percent of the state debt made its way into the hands of speculators who lived in or near Boston, and nearly 40 percent into the hands of just thirty-five men,' historian Leonard Richards explains. [p. 75] Furthermore, of these thirty-five men, 'all of them during the 1780s either served in the state house themselves or had a close relative in the state house.' [p. 78]

One creditor who held at least '3,290 in state notes was James Bowdoin, who with great difficulty managed to replace the popular John Hancock as governor in 1785. Hancock was suffering from gout and wouldn't run for reelection. Unlike Hancock, who had a strong following in the countryside, Bowdoin had a low opinion of backcountry people. In his inaugural address, Bowdoin emphasized 'the state's need to fully honor its debts.' [p. 87]

The legislature decided to pay off the state note holders in hard money and expected to have the task completed by the end of the decade. At first, it tried funding the debt with impost and excise duties, and when that didn't work, they turned to poll and property taxes. This meant that every farmer would 'have to pay for every son sixteen years or older, every horse he owned, every cow, every barn, every acre in tillage.' Ninety percent of the taxes would come from direct taxes on property, with the remaining 10 percent, import duties and excises, falling mainly on the Eastern elite.

Not only was the tax bite going to be heavy, then, [Richards explains] it was biased against farm families with grown sons, and the chief beneficiaries were to be Boston speculators. These were inflammable ingredients . . . [p. 83]

Closing the courts

Since 1782, western towns such as Pelham and Greenwich had been petitioning the state legislature to address their concerns about the constitution. Every year their petitions were ignored. When it happened again in the summer of 1786, men from towns in the western counties marched in military formation -- some armed, some unarmed, some with fifes and drums -- on the Northampton courthouse and stopped the court from opening. The 'rebels' were attacking the most visible symbol of state authority in the west, the judicial system established by the 1780 constitution.

A few days later rebels closed another court in Worcester . Bowdoin, as governor, called out the militia, but the troops refused to respond. The court cases were postponed until later that fall. A week later, rebels closed the courts in Concord , Taunton , and Great Barrington. Two weeks after these, the Supreme Judicial Court in Springfield opened but no jurors could be found. Four days later Chief Justice William Cushing shut down the court.

The Massachusetts elites were outraged. Former radical Sam Adams wanted the rebels put to death for daring to 'rebel against the laws of a republic.' [p. 16]

In late December, when protestors stopped court from opening in Springfield , Bowdoin decided to hire an army to suppress the rebellion. On January 4, 1787 , without legislative authority, Bowdoin issued a call for 4,400 men. Leading them would be General Benjamin Lincoln, who was known not so much for his generalship as for his connections with men of influence. Washington , for instance, gave him the honor of receiving Cornwallis's sword at Yorktown , even though Lincoln had earlier surrendered an entire army at Charleston . Together, Lincoln and Bowdoin managed to get 153 moneyed men of Boston to provide the '6,000 needed to fund the army. [p. 23, 24]

On January 19, with 2,000 recruits from eastern counties, Lincoln headed west from Boston in a blinding snowstorm. Their goal was to secure the federal arsenal at Springfield , now considered a threat if it fell under rebel control. Lincoln had expected 2,400 men from western counties to join them along the way, but less than half that number did. The number would've been lower still had the backcountry clergy not opposed taking up arms against the state. Lincoln was further disappointed that so few of his men were veterans.

Daniel Shays and the Regulators

The rebels, who referred to themselves as Regulators in the tradition of men opposed to tyrannical government, were not about to submit to Lincoln's mercenaries, and under the direction of three leaders decided to seize the federal arsenal at Springfield. The state and the press had crowned one of the leaders, Daniel Shays, as the commander-in-chief of the entire rebellion.

Shays was a 40-year-old farmer from Pelham who had enlisted in the Revolution as a common soldier and advanced to the position of officer. Though not rich, he was hardly the no-account the state made him out to be. He and his wife Abigail owned over 100 acres and both were active in their community. The men who followed Shays and other leaders to Springfield were not 'a motley assortment of penniless farmers' or men fleeing from the virtual certainty of debtor's prison. Most Regulators were members of large extended families, many of them affluent, with a tradition of sticking together.

On January 25, a contingent of Regulators advanced on the arsenal in Springfield through four feet of snow, only to be greeted with artillery fire shot over their heads. Major General William Shepard, commanding 1,200 militiamen, had arrived at the arsenal earlier and taken control of the munitions. When the Regulators continued to advance, Shepard issued orders to fire at waist level. Four men were killed, many wounded.

After the rout at Springfield , Shays moved his troops to the small town of Petersham . Lincoln caught up with them and launched a surprise attack on the morning of February 3, having marched through the night in a blizzard. Shays and the other rebel leaders fled and eluded capture, as did most of the rank and file. When the Boston elites heard the news, they hailed Lincoln as a great hero and called for harsher treatment of the rebels.

A more corrupt government

Amid their celebration, the state authorities realized there was a downside to their victory. It's hard to squeeze taxes from fleeing rebels, and taxes were needed to redeem the notes held by Boston speculators. As Richards explains:

[The speculators] imagined the state debt being scaled down and paid off in paper money. Their only hope, so many argued, was the federal government. But the present federal government, under the Articles of Confederation, lacked the power to tax and the means to pay off the noteholders. . . [p. 124]

Nationalists throughout the country, including Massachusetts , considered the Confederation government 'the laughing stock of the Atlantic world.' [p. 25] But getting enough of them together to replace the Articles of Confederation had proved fruitless prior to 1787.

Shays's Rebellion gave them the edge they needed. Salem merchant Stephen Higginson, for instance, who helped raise money for Lincoln 's army, told his friends that 'the present moment is very favorable for increasing the dignity and energy of Government.' [p. 127, 128] General John Brooks, another backer of Lincoln 's expedition and a leading member of the elitist Society of the Cincinnati, was happy about the rebellion because it would help his crusade for a stronger national government. Men like Henry Knox, Alexander Hamilton, and James Madison found the rebellion useful for persuading Washington to preside over the Constitutional Convention in Philadelphia that May. Henry Knox, for example, wrote Washington saying the 'insurgents have never paid any, or but very little taxes' and are determined to remedy their poverty through 'the weakness of government.' [p. 129]

Washington 's larger-than-life status among the country's citizens gave the convention the prestige it needed to launch a nationalist agenda.

Though the nationalists didn't get the constitution they wanted, they nevertheless took a big step towards the centralized state they envisioned. Government today is limited only by what it can get away with. The massive inflation of the Continental and the various state issues created severe economic hardships for many, and windfall opportunities for a few. It was the consummation of those opportunities in Philadelphia that proved fateful for the ideals of the American Revolution.